Fed’s Bostic Now Sees Just One Rate Cut This Year

Federal Reserve Bank of Atlanta President Raphael Bostic said he now sees just one interest-rate cut as likely this year, rather than two, with tariff hikes impeding progress on disinflation.

“I moved to one mainly because I think we’re going to see inflation be very bumpy and not move dramatically and in a clear way to the 2% target,” Bostic said Monday in an interview with Bloomberg Radio and Television in Atlanta. “Because that’s being pushed back, I think the appropriate path for policy is also going to have to be pushed back in getting us to that neutral level.”

Bostic now sees price growth returning to the Fed’s 2% goal at some point in early 2027. That’s in line with his colleagues’ forecasts published at last week’s policy meeting. Officials in September had estimated they’d reach that target in 2026.

The fresh projections also showed policymakers favored a half percentage point of cuts this year — presumably between two increments of 25 basis points — unchanged from December, according to the median forecast. However, more officials penciled in just one cut or no cuts at all.

Chair Jerome Powell, who spoke after the Fed left rates unchanged last week, reiterated that officials are in no hurry to adjust rates, saying the US economy is on solid footing despite sagging consumer sentiment.

Powell said he expects the inflationary impact of tariffs will be transitory, signaling officials can look through the price effects of tariffs and lower rates if the labor market weakens substantially — so long as long-term inflation expectations remain stable.

Powell and other policymakers have downplayed a series of reports from the University of Michigan showing a rise in long-run inflation expectations, saying other measures of expected inflation have largely remained steady.

His use of the word “transitory” surprised many Fed watchers as it revived a term central bank officials used through much of 2021 to describe the pandemic’s impact on price pressures. In that instance, Powell and others were ultimately proved badly wrong.

Bostic said that while tariffs have historically had a one-time impact on prices, the recent bout of high price growth could mean a more sustained impact this time.

“We’ve just gone through a period of elevated inflation so it’s very much on the consumer’s mind,” Bostic said. “I fear that they might be more sensitive to higher prices today than they have been in the past, but they might not, and we’ll just have to see how it plays out.”

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